Initially the Carbon Tax will be charged at a rate of $10 per tonne, but it is slated to rise $5 per annum until the tax reached $30 per tonne in 2012. The tax will also be tax neutral, meaning that the $1.849 billion of estimated revenue generated, will not be spent on new government expenditures, but will instead be to taxpayers in the form of reduced taxes elsewhere. British Columbians will pay 2% less in income tax in 2008 and 5% less in 2009 on the first $70,000 of earnings, with further tax reductions anticipated in 2010. British Columbian businesses will also see the tax reductions: with corporate income tax being reduced from 12% to 10% by 2011, and the small business tax rate being reduced from 4.5% to 2.5% by 2011. To help offset the regressive tendencies of a Carbon Tax the B.C. Government will also pay a Climate Action Credit of $100 per adult and $30 per child to low income households.
[Click for budget overview: http://www2.news.gov.bc.ca/news_releases_2005-2009/2008FIN0005-000224.htm, Click for carbon tax: http://www2.news.gov.bc.ca/news_releases_2005-2009/2008FIN0005-000224-Attachment4.htm]
Of course trial and error is somewhat natural whenever trying something new; and the new carbon tax has some pitfalls.
For instance, in addition to the aforementioned tax adjustments, every British Columbian resident will also receive a one-time Climate Action Dividend of a $100. The Governments claims that they “...hope that British Columbians will apply the funds toward purchases that can help reduce their greenhouse gas emissions and, by doing so, also reduce the amount of carbon tax they would otherwise pay.” It seems more likely, however, that the $100 dollars in cold cash is more about making a new tax more palatable to the public.
The NDP have questioned this new tax arguing that it unfairly penalizes individuals while leaving the large greenhouse emitters unregulated. To its defence Cambell's Liberals have indicated that they intend to deal with large emitters through a cap and trade system, but the this cap and trade system will not be implemented immediately. “You believe it when you see it!” in politics.
Some academics have questioned the efficacy of taxing fossil fuels directly. Dr. Wallace E. Oates of the University of Maryland argues:
...whenever possible we should design the tax to address directly the polluting act. This may in some instances require some ingenuity. To take one example, automobile emissions are a primary source of urban air pollution in many countries. It is tempting to regard such emissions from a particular vehicle as beyond our monitoring capacities and settle for a tax on gasoline. But such a tax, while perhaps discouraging driving to some extent, fails to provide needed incentives to purchase automobiles with desirable emission characteristics and, equally important, to maintain them in ways to keep pollutant emissions at low levels. But there are taking place important advances in monitoring technology. It may soon be possible through periodic inspections (or perhaps even remote detection devices) to measure the levels of emissions from individual vehicles and then, with some measure of the miles driven, to fashion tax bills that reflect reasonable accurately actual emissions.
Others question how effective the carbon tax will be in changing behaviours. Is 2.4 cents per litre of gasoline enough of a financial burden to induce people to walk, cycle or take the bus to work? Gasoline prices have risen considerably more over the past three years, and yet there does not seem to be a drastic reduction in the number of vehicles on the road.
In a 1996 article in the Energy Journal, Molly Espey surveys numerous studies between 1936 and 1986 on the price elasticity of gasoline, finding “price elasticity estimates for the demand for gasoline of the United States range from -0.02 to -1.59, averaging -0.53...”. Assuming this average is reasonably accurate , with gas costing roughly a dollar a 2. 4% (or 2.4 cent per litre) increase in the price of gas would translate into a 1.272 %be decrease in the demand for gasoline, eventually rising to a 3.816% reduction in the more recent study gasoline demand as the tax per tonne is increased.
In a more recent study researchers compare U.S. gasoline price elasticities from 1975 to 1980, with price elasticities from 2001-2006 and find that the demand for gasoline has became more inelastic; indicating that American consumers have become less responsive to changes in gasoline prices. Whether this is a result of changes in land use patterns, a greater reliance on the personal automobile, or higher discretionary incomes is matter of some debate. [http://repositories.cdlib.org/ucei/csem/CSEMWP-159/]
The inelastic nature of gasoline demand means that it is unlikely that this carbon tax, on its own, will inspire the carbon reductions necessary to seriously combat climate change. However it is a step in the right direction.
In addition to implementing a carbon-tax the government has also committed itself to spending more than $1 billion dollars on capital and operating costs to help fight climate change. These include: $370 million for public transportation; $98 million to encourage individuals and communities to make more energy-efficient choices for their homes, businesses and vehicles; 130 million to make the British Columbian public sector carbon-neutral; 98 million for climate change research; $111 million to develop additional climate action solutions-stakeholder consultations, establish and fund the Citizens’ Conservation Council, assist the Climate Action Team, and support public outreach to promote greener choices; and the government is also providing Provincial Sales Tax exemptions for a variety of products like Energy-Star a ppliances, biodiesel, aerodynamic devices for commercial tractor-trailers, electric-assisted two and three wheel cycles, and non-motorized adult tricycles. [http://www2.news.gov.bc.ca/news_releases_2005-2009/2008FIN0005-000224-Attachment3.htm]
There is always room for improvement in life, and the carbon tax concept will undoubtedly be refined over time and across varying situations. British Columbians, however, should be proud that there government has taken a bold step, that may very well make taxation more fair, and spur innovation in the burgeoning green economy. Now if only we could see the same sort of political guff from the other governments in North America, most especially from Mr. Flaherty when he introduces the Canadian Federal budget today.
JRB
Print Sources:
1. Espey, Molly. "Explaining The Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis" Energy Journal; 1996, Vol. 17 Issue 3
2. Oates, Wallace E. "Green Tax1es: Can We Protect the Envir1onment and Improve the Tax System at the Same Time?" Southern Economic Journal; 1995, Vol. 61, No. 4
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